Holiday Deductions

Stringer and ors v Her Majesty’s Revenue and Customs

Workers are entitled to four weeks' paid annual leave under the 1998 Working Time Regulations (WTR). In Stringer and ors v Her Majesty’s Revenue and Customs, the House of Lords said that workers who are denied holiday pay can pursue a tribunal claim for unauthorised deductions from wages under the Employment Rights Act 1996 (ERA) as well as under the WTR.

The claimants’ union, the PCS, instructed Thompsons to act on their behalf.

Basic facts

The case involved five employees who had been on long term sick leave and who brought claims under the WTR because their employer had not paid them holiday pay.

One of them (who had been dismissed on grounds of ill health) claimed that the Revenue had made an unlawful deduction from his wages when it failed to pay him holiday pay in respect of unused annual leave, on termination of his employment.

Initial decisions

The employment tribunal agreed with the workers’ claim that they were entitled to accrue and be paid for their statutory minimum annual leave entitlement, as did the Employment Appeal Tribunal.

However, the Court of Appeal disagreed, saying that workers cannot claim holiday pay when their entitlement to sick leave has run out and that they forfeit the right to compensation for holiday not taken if their employment was terminated during the leave year.

The House of Lords referred the case to the European Court of Justice (ECJ).

ECJ decision

The ECJ (see LELR 105 for more details) decided that member states can allow workers who are off sick to take annual leave. It also decided that they can only prevent a worker taking leave while off sick if the worker has the right to carry over annual leave to a subsequent leave year and is unable to take it because of illness. (Note the UK Working Time Regulations do not allow the carry over of annual leave).

The case then returned to the House of Lords to decide whether claims for unpaid annual leave and/or a payment on termination could also be pursued as an unauthorised deduction of wages under the ERA.

Relevant legislation

Section 13 of the ERA states that employers cannot make deductions from a worker’s wages unless it is authorised by statute or contract, or the worker has agreed in writing to the deduction.

Section 27(1) states that any sums payable to workers in connection with their employment, including “any fee, bonus, commission, holiday pay or other emolument referable to his employment, whether payable under his contract or otherwise” comes within the meaning of “wages”.

Section 23(3) allows a complaint in respect of a series of alleged deductions to be made within three months of the last deduction as opposed to the first.

House of Lords decision

The House of Lords has now decided that claims for unpaid holiday and/or a payment on termination can be pursued as unauthorised deduction claims under the ERA as well as the WTR, saying that the reference to “wages payable to workers in connection with their employment” in section 27 must be interpreted widely.

In coming to its decision, it referred to the principle of “equivalence” in EC law which requires that “a limitation period in respect of an action on a claim arising out of EU law must be no less favourable than for similar actions based on domestic law”. It concluded that workers must therefore have the right to bring their claims under the ERA as well as the WTR.